All You Need To Know About Paying Tipped Employees

September 14, 2019

When paying your employees, the last thing you want to do is break any of the labor laws, and so minimum wage laws at federal, state and local levels must be strictly adhered to. That said, some employers paying staff within certain industries, can pay their tipped employees less than the minimum wage and not break any labor laws; this is known as the tipped minimum wage.


Here’s a closer look at tipped minimum wages:


What is the federal minimum wage for tipped employees?

Currently, the federal minimum wage stands at $7.25 per hour, and this is the lowest amount that an employer can pay their workers for each hour that they work. However, the FLSA or Fair Labor Standards Act does make an exception for those working in certain industries, such as waitressing, whereby employers can pay them a lower minimum wage based upon the fact that they earn tips. Tipped employees, as federal law states, are workers who are in regular receipt of tips upwards of $30 every month. Employers can then claim a tip credit toward the federal minimum wage which then enables them to pay their tipped staff at a lower hourly rate.


Tip credits lower the hourly minimum wage for those employees who qualify, by the amount of the credit, and the highest tip credit employers can claim is $5.12 per hour.


In summary, tipped employees are paid a federal minimum wage of $2.13 per hour, which is the sum of $5.12 subtracted from $7.25 and is referred to as the minimum cash wage.


Paying your staff, the tipped wage:

In order to pay your employees a tipped wage, you must notify them of the amount you’re claiming as a tip credit and their hourly rate. Failure to do so could result in you being forced to pay them the regular minimum wage and allowing them to keep their tips.


Do all states follow the federal tipped minimum wage rate?

While some states don’t permit employers to pay a tipped wage rate, others require that employers pay a state-mandated tipped minimum wage at a higher rate than the federal one. In some states, tipped employees are considered as such if they earn more than $20 in tips a month, such as the case in Kentucky, North Carolina and Massachusetts, for example. Understanding and being clear on how the state you’re in defines tipped employees, is important if you’re to stay on the right side of the law.


What if an employee doesn’t earn enough in tips?

The combined minimum cash wage and an employee’s tips should be more than the regular minimum wage for employers to qualify for tip credits, so if an employee’s tipped minimum wage and tips combined don’t make enough to reach the minimum wage, then the employer has to make up the difference.


For further advice and guidance on any wage related queries that you may have, contact a professional payroll company, who will have all the latest updates regarding labor laws.


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